Penalty u/s 271(1)( c) cannot be impose when assessee failed to produce the parties before AO for examination

Chempure vs.Income-tax Officer, 14(3)(1), Mumbai (THE ITAT MUMBAI BENCH ‘B’),  07.05.2010

FACTS

Assessee was purchase Rs. 1599295 from various concern concerns belong to Mr. F.H. Rizvi.  During During the course of assessment proceedings, it was asked the assessee to produce those parties but the assessee failed to do so despite repeat opportunities were given by the Assessing Officer. The Assessing Officer treated the said purchases of Rs. 15,99,295 as bogus purchases for assessment year 1996-97. The assessee filed appeal before the CIT(A), who confirmed the addition to the extent of 25 per cent of total purchases. The order of CIT(A) has been confirmed by the ITAT. The Assessing Officer levied penalty under section 271(1)(c), which has been confirmed by the CIT(A). The CIT(A) in principle confirmed the penalty levied by the Assessing Officer, however, he directed the Assessing Officer to recalculate the minimum penalty in respect of addition sustained.

HELD

If we apply the above discussions to the facts of the case under consideration we find that the assessee had tried to substantiate its claim by filing affidavit and other material in quantum matter. In quantum matter, the CIT(A) vide order sheet dated 9-1-2003 asked the assessee to produce Mr. Rizwi for examination but the assessee failed to do so. The Assessing Officer has also mentioned in the remand report, which was reproduced by the CIT(A) in quantum order in para No. 7 that summons under section 131 dated 11-10-2001 issued to Mr. Rizwi but the same was not complied by Mr. Rizwi. It was submitted by the Assessing Officer that the assessee has not availed opportunity as he did not impress upon Shri Rizwi to attend before the Assessing Officer. The grievance of the revenue is that the assessee has failed to produce party. It may be noted that when the assessee filed complete details of the party, the revenue authorities have ample power including issue of summon under section 131 of the Act whereas the assessee has no such power under the Act to bring the party personally to produce before the Assessing Officer. It appears from the record that revenue authorities did not exercise such power under section 131. If we consider the facts of the case under consideration from the point of view of a businessman for that purposes we would like to refer a general human probability/tendency in business circle. That when transactions with a particular party are over that party may not ready to co-operate in giving information which were exactly asked by the Assessing Officer to the assessee which were to collect from the party by the assessee. As stated above that under these circumstances, the revenue authorities have ample such powers under the Act and if they are not exercising such powers, the assessee cannot be blamed for concealing particulars and/or furnishing inaccurate particulars of income. Further, the business is managed through employees/staff in that circumstances, the assessee may more interested in cost then parties to whom it was purchased. In respect of quantum matter if the assessee failed to submit such material information to substantiate their claim addition could be sustained but this aspect of human probability tendency of non-co-operation by the parties after business transaction is over, is required to be considered while deciding bona fide aspect of the assessee in penalty matter under section 271(1)(c) of the Act. The case of the assessee falls under the essence of Part B of the Explanation. The assessee offered reasonable explanation. The Assessing Officer has not given finding based on some contradictory evidence to disapprove that explanation offered by the assessee which the assessee is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Penalty under section 271(1)(c) cannot be levied unless the case is strictly covered by the provisions of section 271(1)(c). There is no finding that that the assessee has concealed particulars of income or furnished inaccurate particulars of income, discussed above. Under the circumstances, it cannot be held that the Assessing Officer has found that the assessee has concealed particulars of income or furnished inaccurate particulars of income.

In the light of above discussions, if we consider the facts of the case in totality and after considering the quantum orders of revenue authorities we find that this is not a fit case for levy of penalty under section 271(1)(c) of the Act. We hereby cancel the penalties made by the Assessing Officer under section 271(1)(c) in all the three years under consideration.

 In the result, the appeals of the assessee are allowed.

Editor